The Cyprus bailout

Andreas Theophanous is Professor of Political Economy at the University of Nicosia, President of the Cyprus Center for European and International Affairs (former Research Center – Intercollege) and Head of the Department of European Studies and International Relations, University of Nicosia. He visited several European, American and other universities and think-tanks as a Visiting Professor, Senior Fellow and/or Guest Speaker.

Zentuccio: Do you think the Parliament will pass or not…?
Andreas Theophanous: I don’ t know whether they would vote at all…

Why?
It is a very difficult issue. Here in Cyprus the bailout creates more problems than it is trying to solve. It punishes the economy much more than it helps.

The fact of the matter is whole world thinks that your banking system is in default.
I don’t think that banking system of Cyprus is the only one that has problems.

Well, I don’t know but they say it is in the worst shape.
The banking sector problems were inherited from the euro zone crisis. When the European Union two years ago took a haircut in the Greek debt we lost a substantial amount of our GDP.

Was it a direct or an indirect impact?
It was a direct impact. It was a banking sector that lost 5 billion euros, about 25% of its GDP. No other country suffered like that. That was less than 2 years ago, it was October 2011. We understand that we have to fix the financial sector but it cannot be done with a shock therapy.

What is according to the Cypriots the solution?
The Cypriots can share and pay the obligations but no in this way. This is an attack on the banking sector which creates more problems. I mean who will trust the Cypriot banking sector after such a haircut. It will erode the confidence in the banking system.

Well, I mean the banking sector is only one of the sectors in the economy, right?
The financial sector is the most important one. The bailout is 17 billion euros. They tell us we will give you 10 billion euro as a loan and you should have a haircut of almost 6 billion and then they tell us you are going to have liquidity of almost 30 billion and don’t worry about the bank run. It’s very clear to us there is an attack on the banking sector.

Cyprus is a small country, do you think it’s worth to punish them?
I think the policy of the European Union towards us doesn’t have sound economic basis. Analysts say it might have an impact beyond Cyprus.

Is the Russian – Cypriot relationship is one of the impacts?
The tertiary sector of Cyprus is almost 80% of the economy, service sin general. This is an attack on the whole economy. There is no solidarity at all. We understand that there are problems and we want to address them but not with a shock therapy.

What is your point? Why is the EU so strict?
Whenever I travel I feel there has been a creation of impressions about Cyprus, money laundering etc and I don’t think it’s fair.

Do you think that Turkey is happy right now?
Well, I don’t know, you can ask the Turks. I’m sure they will not be sad. I don’t want to get into this. Our current situation has nothing to do with Turkey.

What will be the impacts towards other countries?
First of all, it has eroded the confidence in the euro zone. That is a problem. Europe may pay for its decision. There is a big question about the model.